Calculate the portfolio arithmetic average return

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Reference no: EM133966491

Pick FOUR companies as follows from Yahoo! Finance website:
For each company of your choice, go to Yahoo! Finance website, enter the ticker symbol in "Quote Lookup" box. Then, click on "Profile" and identify the Sector to which the company belong.
The companies must belong to a different Sector.
Enter the name of all companies you selected, along with their ticker symbol and sectors, under "Mini-case 1 (State names of selected companies)" Forum.

2) Download the MONTHLY price data for the 01/01/2021 - 12/31/2025 period for each company.
Yahoo! Finance has locked the Download file button as of 09/06/2024. It is no longer available for free. I have created a video showing how we can still download the price data for free from Yahoo! Finance website. The video to the link is provided below:

Calculate the monthly return for all four companies.

Formula:
Return for each month = (Current Adj Close Price- Previous Adj Close Price/Previous Adj Close Price

Calculate and prepare a summary table as shown below.

Describe your findings from Question #4. As a financial analyst, we need to be able to explain our work. Be precise in your responses.
Which company has the highest/lowest return over the period? In your explanation, also describe what arithmetic and geometric return measure and how they are different from each other.
Which company has the lowest/highest risk? In your explanation, also state your measure of risk.
Out of your four companies and based on your results, which stock would you prefer to hold and why? Explain clearly.
Some hints to frame your answer: We need to look at both risk and return dimensions to arrive at our decision. Among the four stocks, say if there is a stock that provided the highest return for the lowest risk, then it performed the best (clear winner). On the other hand, if a stock provided the lowest return for the highest risk, then it performed the worst (clear loser) - you are better off holding other stocks. Or you may see a pattern where riskier stocks yielded higher returns and less risky stocks yielded lower returns. In this case, the decision depends on the investor's attitude towards risk - a risk lover would prefer to hold the risky stock with the expectation of earning higher returns, whereas a risk averse investor would go with the least risky stock.

Calculate the correlation of returns as follows and answer the following.
Correlation between Company 1 and Company 2.
Correlation between Company 1 and Company 3.
Correlation between Company 1 and Company 4.
Correlation between Company 2 and Company 3.
Correlation between Company 2 and Company 4.
Correlation between Company 3 and Company 4.
What does the correlation indicate?
From the above, which set of companies had the highest correlation?
From the above, which set of companies had the lowest correlation?

Using the SLOPE() function, calculate the beta for each of the four companies and answer the following questions.
What does beta measure? Your reliable and affordable assignment help starts today!
List the companies whose beta is riskier than the market portfolio.
List the companies whose beta is less risky than the market portfolio?

Suppose you invest 25% in each company. Compute the following:
Calculate the portfolio arithmetic average return.
Calculate the weighted average of the arithmetic average returns of Companies A, B, C, and D? (w1 * Avg Ret1 + w2*Avg Ret2 + w3 * Avg Ret3 + w4*Avg Ret4)
What do you observe for your answers for parts a) and b)?
Using the STDEV() function, calculate the portfolio standard deviation.
Calculate the weighted average of the standard deviations of Companies A, B, C, and D? (w1 * Stdev1 + w2*Stdev2 + w3 * Stdev3 + w4*Stdev4).
If you have calculated correctly, you should find that your answer for part d) is lower than your answer for part e). Why do you think the answer for part d) is lower than the answer for part e)?
Calculate the portfolio beta.
Calculate the weighted average of the betas of Companies A, B, C, and D? (w1 * Beta1 + w2*Beta2 + w3 * Beta3 + w4*Beta4)
What do you observe for your answers for parts g) and h)?
Is your portfolio more or less risky than the market portfolio? How did you determine that?

Reference no: EM133966491

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